Class Action Lawsuit Calls Nike’s Shutdown of RTFKT NFT Studio a ‘Soft Rug Pull’

A new lawsuit accuses Nike of securities fraud and committing a “soft rug pull” with its shutdown of NFT producer RTFKT.

Attorneys seeking $5 million in damages filed the lawsuit in New York federal court on April 25 on behalf of Jagdeep Cheema and a class of other NFT buyers.

“In the crypto world, a 'rug pull' is when a promoter abruptly abandons a project after raising assets, leaving investors holding the bag,” the lawsuit reads.

“In one scenario known as a ‘soft rug pull,’ investors buy crypto assets with the expectation that the promoter will continue to market the project and increase the interest in and value of the crypto assets, but the promoter shuts the project down instead.”

While calling it “all too common” in crypto, the suit added that “one does not expect it from Nike, however.”

Are NFTs Securities?

The lawsuit also argues that NFTs are securities, something that no court has ruled on. A key part of the definition of a security is that it derives value from the efforts of others.

“Because the Nike NFTs derived their value from the success of a given promoter and project—here, Nike and its marketing efforts—investors purchased this digital asset with the hope that its value would increase in the future as the project grows in popularity based on the Nike brand,” the plaintiffs argue.

The question of whether or not NFTs are securities will likely be settled once the promised crypto regulation bill gets through Congress, something that could happen as early as August.

When Nike instead shut down RTFKT in December of 2024, “investors were decimated,” the lawsuit claims.

With the end of RTFKT and, by extension, Nike’s many targeted promotional initiatives aimed at hyping up the Nike NFTs and stimulating demand, the reason that so many had purchased the Nike NFTs — to complete quests to gain access to addiional NFTs or physical Nike products, and/or to resell the Nike NFTs on the secondary market to others — evaporated instantly.

CloneX Collection Disappears

The lawsuit comes on the heels of another incident involving RTFKT, when almost 20,000 NFTs suddenly disappeared, highlighting that NFTs are not as safe as they seem, nor as immutable as people think.

On April 24, some 19,800 CloneX digital avatars from RTFKT’s flagship collection were replaced by white text on a black background explaining that the content had been restricted for violating Cloudflare’s terms of service.

RTFKT was able to restore the NFTs the next day after fixing a technical glitch, but in the meantime, speculation arose on X that Cloudflare’s bill had not been paid.

RTFKT head of technology Samuel Cardillo explained that an unpaid bill was not the problem, but rather an issue in switching the content to a free Cloudflare service.

But what was clear is that NFTs are not as permanent as most buyers believe.

NFTs’ Dirty Little Secret

It’s still not broadly known or understood that virtually all NFTs are not actually “on” a blockchain, and are thus not immutable.

Instead, what NFT buyers are getting on the blockchain is metadata and a link to a website where the actual NFT media is stored.

There’s a very simple, and good, reason for this: The file size of most NFTs is too large to fit in a single block, and on Ethereum, too expensive in gas fees to reasonably try if it did fit.

“The RKFKT outage is a clear reminder of how fragile the current NFT infrastructure really is,” said Ben James, founder of 404, a Bittensor subnet focused on democratizing access to decentralized 3D content creation.

“Most NFTs aren’t self-contained on-chain assets—they’re pointers to external files, often hosted on centralized servers or even expired domains,” James told The Defiant via email. “When that storage fails, the visual or functional part of the NFT vanishes, even if the token itself still exists on-chain. This creates a gap between what buyers think they own and what they actually control.”

Decentralized Storage

There are plenty of reasons data can be lost, from creators taking them down to back-end issues like RTFKT suffered, to say nothing of fees going unpaid and companies going out of business.

It’s a problem that’s endemic to the Web at large, according to a study by the Internet Archive, Old Dominion University and the Filecoin Foundation, a Web3 storage provider. In a study of 27.3 million archived URLs across 7 million unique hosts, they found that the median lifespan of a web page is 2.3 years.

“If the industry wants NFTs to be reliable digital artifacts, we need to rethink how we handle storage — especially for projects that claim permanence or long-term cultural value — and look to decentralized systems that eliminate single points of failure,” James said.

One solution to this issue is solidly at the heart of Web3: Decentralized storage.

Web3 offers permanent storage solutions based on breaking up data into small chunks and storing it across a network of computer nodes.

One of these is Arweave, which worked with RTFKT to bring its NFT data onto the platform. It describes itself as a “network like Bitcoin but for data: A permanent and decentralized web inside an open ledger.”

The main idea is that information stored on Arweave and similar platforms like Filecoin, Storj, Sia Network and the InterPlanetary File System is not just permanent but also censorship-resistant. Once it’s up, it cannot be taken down because it is distributed across many computer nodes..

Cardillo said on X that by April 30, the entire CloneX and Animus collections should be secure on Arweave. “No downtime of your favorite art ever happen again,” he said.

The Defiant’s articles are permanently stored on Filecoin, a competitor of Arweave.